Margin trading continues to take center stage in the cryptocurrency industry. Despite the risks associated with margin trading, it remains a profitable venture. However, most existing margin trading platforms do not offer investors the much-needed freedom to dictate things as they are highly centralized. However, the emergence of Decentralized Finance has presented an opportunity to change the status quo. Degen Protocol is a new project that is changing the playing field. The main catch for Degen Protocol is its customizable features in enabling margin trading.
What is Degen Protocol and its proposition?
Degen Protocol is a decentralized finance project that powers margin trading and is customizable, giving investors control of the system. The project is anchored on both BSC and the Ethereum chain, and their features vary alongside their respective fee structures. The protocol is powered by the GDN token, whose supply has been set at one million.
Degen Protocol’s proposition to the cryptocurrency ecosystem is to change the approach towards margin trading. From the start, when a trader opens a leverage trading position on Degen, a commitment and a liquidation fee are frozen in his balance. For all traders, the commitment size relies on leverage. Anyone can liquidate a long or short position if there is a loss that surpasses the commitment size. Furthermore, the system also enables users to top up more commitment to a position to prevent liquidation. Note that once a position closes.
The commitment and liquidation fee are remitted to the balance.
For most existing margin trading exchanges, investors usually have less control when it comes to controlling risk. Typically, margin trading is known to be volatile and very risky, but Degen Protocol offers room to control losses. Furthermore, a liquidation fee can be paid to stop loss or take profit. Another catch for the protocol is that the liquidation fee is fixed for the trade and can be changed based on the gas price. The variation in fees is meant to offer incentives for users to liquidate positions smoothly. The margin trading operates on both BSC and the Ethereum chain with varying features between the two versions and their respective fee structures.
At the core of Degen Protocol is the bi-pool feature that refers to a pair of liquidity pools. The bi-pool feature offers sufficient liquidity for every trading pair. With existing margin trading platforms, mixing pools for different trades is not possible as there is a vulnerability of undiscovered tokens. For Degen, the bi-pool protocol protects investors from malicious pool creators by using a smart contract.
It enables the creation of a new bi-pool for the desired UniSwap or other AMM pair. Worth mentioning is that many pools can exist with different settings for the same AMM pair. This allows investors to pick and choose between them. Following the creation of a bi-pool, lenders can top up funds and earn interest.
Degen protocol is for investors who utilize tokens in pools to make profits and return them to the pool with fees. Traders can also select a trading pair simultaneously by choosing a margin pool based on rating, liquidity, lenders’ interest, and open positions. This is part of the stop loss and takes profit functionality that Degen Protocol introduces into the cryptocurrency market.
The protocol is also home for stakers who can stake tokens and participate in governance while earning a profit on each platform trade.
For lenders, the platform enables tokens to pool for trades and subsequently be awarded fees for each pool trade. The unique lending feature serves investors who are not interested in the AMM pool. Therefore, investors are required to deposit funds to a margin bi-pool and get bearings that are independent of either profits or losses.
The project also has pool creators who are mandated to add any trade pair pool to the Degen protocol while promoting it to investors and lenders simultaneously. Worth mentioning is that the lending feature is different from existing solutions as it enables anyone to create a margin trading bi-pool. In this case, the creator can customize the pools based on creator fee, lender fee, max leverage, pool max utilization, along with lenders’ day interest.
To maintain the project’s growth, Degen Protocol has lined up several system updates like the governance changes scheduled for Q2 2021. As of Q3 2021, investors will have an opportunity to enjoy additional AMM integration alongside synthetic derivatives in the next quarter.
The bottom Line
There is no doubt that cryptocurrency margin trading is a game-changer in the financial ecosystem. However, investors are limited from experiencing the full potential of leverage trading since most exchanges are highly centralized; hence traders have a minimum role in governance. However, the all-customizable Degen Protocol offers a new opportunity for what can be achieved when governance is handed to investors.